Your joke is amusing, yet i wonder, do you believe that hiring and firing at universities occurs independently of issues concerning the funding of academia?
DD5,
Now you’re talking about politics and that’s something I actually have absolutely zero interest in. I am exclusively talking about Milton Friedman the economist (who unquestionably changed the way economics is studied by critiquing the mainstream Keynesian approach). The only reason I even mentioned that Friedman was a libertarian was to illustrate that your political beliefs need not impact the acceptance of your economic ideas.
But I can tell that politics and economics seem to meld a lot here, as if there were no difference between positive and normative economics:
-Grayson
So the really bad thing about adopting Friedman’s scientific methodology is what it it will do for the libertarian political movement? Interesting.
Student, you have implicitly expressed a particularly outdated view of science, namely as an unbiased 3rd party observer which collects various subjective inputs (biased) and yields totally factual objective results. But that’s not how science operates; dogma and emotion, more often than not, overcome reason. The Cambridge capital controversy, for example, was not a real scientific debate. You had the Cambridge Keynesians debating the MIT Keynesians, where the former tried to revive the already refuted Ricardian paradigm of class analysis and distribution. Their critique only applied to the mainstream homogeneous production function, and not the Austrian conception of a multi-tier structure of production (Garrison writes about this extensively). The differences in capital, as you’ve already acknowledged, are huge, but there are fundamental differences between the notion of value (cardinal vs ordinal), price, and the role uncertainty (rational expectations turns men into super-human probability theorists) as well. Such differences are intrinsically philosophical, and they stem from an entire history of economic thought. From the breaks between Smith and Turgot/Cantillon, Ricardo and Say, Ricardo and Malthus, and so on and so forth.
Static analysis, that is, from one theoretical equilibrium position to another, is simply not how the world works. It must necessarily miss the major agents/forces of change. Blaming psychological factors for cyclical fluctuations doesn’t explain why the price mechanism has failed to coordinate production–it is quite simply mysticism.
As long as you’re under the impression that economists are on some quest for truth, and not at all biased by their own philosophical/political views, then you will miss the real differences between the mainstream and other schools of thought. I’ll read those articles you linked though. I don’t want to come off as attacking you or your beliefs, since I’m not fully acquainted with graduate level neoclassical economics. I’m just an undergraduate student who’s never learned anything sensible in my undergraduate courses (though all of my professors are extreme leftists).
I understand that Friedman must come off as radically different from Keynes, but their theories simply aren’t that different (when compared to other heterodox schools of thought). They hold onto a mechanical view of money, and merely observe the interplay of aggregates.
The LVMI is a heavy investor in the higher order stages of academic production![H]
Let’s hope we don’t suffer from mal-investment boom[:P]
Student, you’re the one who brought in the success of “libertarian economists” as an objective to consider. I’m just addressing your contention that embracing positivism would further that objective, NOT that I hold that objective myself. In fact I have been VERY vocal in this forum in support of maintaining Austrian economics (and science in general) as value-free.
Abskebabs: yes, exactly! 
Esuric, amazing post. One tiny quibble: keynes’ and friedman’s methodologies were actually different. Friedman was an empiricist and Keynes was not. As Garrison argued in “Is Milton Friedman a Keynesian?”, recently reprinted as a Mises Daily, they shared, as you mention, the same level of aggregation at which they looked at macroeconomics, but, again, they used different methodologies in inferring things about that level of aggregation (positivism vs. fallacious theory).
Haha, thanks. I often misuse the term “methodology.”
As long as LvMI never accepts government money, perhaps it can avoid one.
It must be Samuelson’s expertise on capital theory that led him to believe the USSR would continue existing beyond its inevitable collapse? Is it Krugman’s Nobel that is responsible for letting him so wonderfully (mis)represent the ABCT making errors an amateur should not make? The fact that someone is ‘brilliant’ means nothing if they do not take the time to familiarise themselves with the theoretical apparatus at hand. In that sense Austrians are not communicating enough, aside for some people like Garrison. You don’t want to get in a heat discussion on the matter and it’s fine. I agree on:
But then the LVMI is serving its own niche market. Many of its authors are involved in higher academic work. The LVMI has a different function. Were it not for it I would not be acquainted with Austrian theory in the least.
This is taking us far afield of the original point of the discussion, but I will note that the Cambridge Capital Controversy was not restricted to homogenous production functions. Most importantly the CCC questioned whether there is a negative relationship between capital intensity and the rate of interest.
Garrison tried to address Samuelson’s argument here:
http://www.auburn.edu/~garriro/garrison.pdf
I’ll let you decide if he does a good job, but hopefully you will see that CCC was hardly irrelevant to Austrian capital theory.
So you argument is that ABCT is not more generally accepted because mainstream economists are lazy??? And that this is true across multiple economists across multiple decades??? But I guess they were not too lazy to read other economists that attacked mainstream ideas like Friedman and Lucas??? They are just selectively lazy against Austrian Economists???
Well…Okay. I mean, I can’t prove that your argument is wrong. But it just seems incredibly self-serving. That doesn’t mean it isn’t true, but I am personally very suspicious of arguments that rely too much on one’s intellectual opponents being morally or mentally flawed.
And I think that’s the difference between me and everyone else in this thread. So it would probably just be better to break it all off here.
PS* If you want to mock Paul Samuelson, I would at least google a telling example that was relevant to this particular discussion.
It’s true of Krugman at the very least. And in reality, unless they demonstrate sufficient knowledge of AE, one can assume they’ve not researched it. I’ll give Samuelson’s article a look to gauge how well he understands it later, but it need not be attributable so much to laziness as it is speaking in a different language even if the words are broadly similar. That is what I had meant.
Exactly! That is my argument precisely.
PS* As I was going to mention earlier, I also agree that Krugman’s critique of ABCT was glib at best. So I don’t consider him a very reliable critic of AE. Of course, Krugman’s article was published in Slate, not a journal. if you want to find good critics, look for people that are willing to put their arguments to peer-review. In addtion to those mentioned Gordon Tullock has an intersting article critiquing ABCT (PM me later for link) and of course Bryan Caplan has subjected himself to several rounds of peer-reviewed discussion on his criticisms of AE in general.
I think I’ll weigh in here,
With all due respect, there really isn’t such a thing as the “Boettke approach”, or even a “GMU approach”. In terms of economics at least, all they’re really doing is practising it as the rest of the profession does. This includes competing on various different margins, the results hopefully being papers published in top outlets and jobs at highly ranked institutions. Arguably, there’s been some success recently with guys such as Leeson getting a JPE and visiting at Chicago and Coyne teaching at WVU.Part and parcel of this process is interaction with contemporaries, especially those working in their own field, with ideas that although not necessarily entirely in agreement are nonetheless interest.
Look, I really don’t wish to sound condescending here, but very few of you have attended university or taken an economics degree. I don’t wish to imply that you’re stupid or have bad intentions. But, I believe your view of the economics profession and science in general is necessarily skewed by the fact that you get most of your information from a single source. Those of you who have gone to your professors and tried to have an open conversation with them about their research or the economics profession wit the presumption that they’re far more knowledgable than you, will understand what I mean by this.
As for the OP, I think Student hit the nail on the head. First and foremost, the language of mainstream economics is mathematics and I’ve yet to see any representation of the ABCT or some variant of it in math.
But arguments concerning the moral depravity (or stupidity) of the economics profession don’t seem to cut it as far as I’m concerned (that isn’t to say that central banks haven’t caused distortions in macro theory). To blame your (used loosely) failures on the moral bankruptcy of a whole profession seems to be a cop out. All the more so when there are precious few attempts at convincing or reaching out to the rest of the profession. In terms of modern macroeconomics all I’ve seen are Garrison’s paper comparing ABCT and RBC, a paper putting ABCT in terms of New Keynesian theory (forget the author) and one giving an Austrian perspective on Kyland and Prescott (once again, I forget the authors). Granted, this may not be your fault, Austrians (for sociological reasons) seem to have mainly focused on political economy and micro theory. But as Student pointed out, and more importantly, you’re going to have to find some serious empirical proof (read: metrics) that the ABCT is even relevant, naively assuming that it is doesn’t really work).
Look, Keynes has been dead for a long time, Keynesian economics has been dead for about 40 years now, Monetarism followed not long after. If you want to dismiss macro, I think it’s wise to have read more than Blanchard’s or Mankiw’s intermediate textbook. Once again, I mean this with all due respect, but you’re attacking strawmen from 40 years ago with all the diatribes against Keynes.
Now, is the ABCT sound? Not entirely. Macroeconomics isn’t easy work, there should be no reason to expect that the ABCT would be complete. Butos has raised some interesting points concerning expectations (and has an interesting essay using TSO to develop and Austrian theory of expectations), others have noticed that Hayek’s work on the Austrian business cycle has been contradicted by his later work on spontaneous orders and knowledge, in the sense that his theory is very mechanistic (however modern economics such as Lewin, Garrison and Horwitz seem to avoid this). Others still have pointed out that Hayek quickly abandoned his second work on capital theory when it became clear how big the problem was (and that despite the number of people who have attempted to clear it up, none have). Garrison used P&P not PToC for a reason. Hayek himself noted that he doubted the possibility of any general theory of business cycles and others have pointed out that the ABCT was original a description of the housing boom in Vienna (I think).
I’m not saying the Austrian theory is completely worthless. I’m just saying there’s a lot of work that needs to be done.
One last point, for all the fuss people make about capital theory, Yeager has argued that a lot of it is unnecessary. As he points out in his essay in Austrian Economics In Debate it’s not the case that monetarists don’t have a theory of capital, the matter is that it doesn’t function into their explanation of booms and busts in such a way as money, for example, does.
Edit: Esuric, regarding your last post, I think there a few inaccuracies there. Regarding rational expectations, all that requires is that agents know the probability distribution of events, few serious economics believe in cardinal utility (hence monotonic transformations and tools such as marginal willingness to pay) and as for the “mysticism” of invoking psychological factors, it isn’t really mysticism when there’s a lot of literature in the fields of behavioural finance and experimental economics on the subject.
Which would be what I said earlier.
He doesn’t understand the Wicksellian framework, so he’s in no position to critique the ABCT. Saying that actors will realize that the interest rate is too low, and will therefore adjust their calculations, is saying nothing.
They claim they don’t believe in cardinal utility, but continuously presuppose it in their demonstrations. For example, my professor once made the case that exchange can be considered a zero-sum game because as the price rises, the producer gains surplus at the expanse of the consumer, and vice versa. But this only makes sense when you presuppose a standard unit of “surplus,” that is, a cardinal measurement of utility. And for inter-temporal choice, they flatly use cardinal measurements. Rational expectations assumes that individuals know all of the potential results of their actions–they don’t account for “radical uncertainty.”
Does it explain why the price mechanism has failed to coordinate production? Production is not guided by extremely intuitive entrepreneurs who “feel” the demand and supply conditions, but by fluctuations in relative prices.
You’re not saying anything here. I’m about to get my degree, and frequently talk to my professors about their interests. Their business cycle explanations are psychological in nature with a focus on regulation as the remedy (with the exception of one who’s into RBC’s and technological shocks). And again, I blame the incentive structure and not the economics profession per se.
Wonderful, a purely monetary explanation for relative over productions of capital goods and inter-temporal disproportionalities. The demand for money is intrinsically linked to the demand for capital in monetary economies–they are inseparable.
Right. And when his proposals are no longer taken seriously by policy makers, and when economists stop defending such policies, then maybe Austrian’s will move on. Nevermind the fact that the FED is working with the Philips curve. Mankiw’s textbook wasn’t bad, but his call for negative interest rates as a cure for this depression is pure lunacy.
The New Keynesians failed to see this recession coming, and it will lead to a paradigm shift, whether you guys agree with it or not. A -3% savings rate, nations inflating as fast as they can in order to improve their balance of trade, and belligerently low interest rates, should have made this recession quite obvious.
There’s nothing wrong with calling it the “Boettke approach” in the context of a conversation about specifically spreading Austrian economics. There is an ongoing debate within Austrian circles about the merits of two approaches. An active and leading participant on one side of this debate is Peter Boettke.
ABCT will never be represented in mathematics because, as we all know, AE does not use mathematics or empiricism in its methodological approach, and ABCT, and capital theory, are at the heart of AE. The mainstream will never accept praxeology, the scientific study of human action. It is considered pre-science, or non-scientific by the mainstream. After 90 years, isn’t it obvious that mainstream and Austrian thought will never be reconciled? Mainstream economists will continue in their use of mathematics and data gathering. Austrians will always reject the mainstream methodology since Austrians believe such a methodology has nothing to do with economics.
What ABCT has on its side is the fact that the mainstream “policy solutions” have been implemented for the past 85 years in the U.S. These solutions are at the forefront right now. How are they working? Why is there a need for Austrian economists to convince mainstream economists that ABCT is correct when we can see the result of mainstream policy recommendations play out in front of us?
Cheers! [B]